Terry is the beneficiary of a $31,000 insurance policy on the life of his mother. Because Terry needs funds, he sells the policy to his sister, Sue, for $12,000. Sue subsequently pays premiums of $15,000.

Requirements

a. How much income must Sue report if she collects the face value of the policy upon the death of her mother?

b. Would Sue have to report any income if her brother had given her the policy? Assume the only payment she made was $15,000 for the premiums.